By Mixer, Vision Times, Analysis
China’s central bank has now increased its gold holdings for 19 consecutive months, the longest uninterrupted buying streak in years. Since November 2024, the People’s Bank of China (PBOC) has steadily expanded its reserves, which reached 2,331.52 metric tons by the end of May 2026 after another 10-ton increase during the month, the largest monthly purchase in nearly 15 months.
The buying spree has been accompanied by an explosion in imports. Between January and May 2026, China imported 692 metric tons of gold, up 76.6 percent from a year earlier. Imports in May alone reached 163.5 tons, the highest monthly level since March 2024. Gold now accounts for nearly 9 percent of China’s foreign exchange reserves, steadily crowding out other reserve assets.
More telling than the buying itself is Beijing’s effort to bring overseas gold back home. The underlying mindset appears to be simple: Gold is only truly safe when it is physically under China’s control. While on the surface, the strategy appears prudent. But in reality, it may be undermining one of the most important functions of foreign exchange reserves: Liquidity.
Security at the expense of liquidity?
Gold is not valuable simply because it exists inside a vault. It is valuable because it can be mobilized quickly during a financial crisis. Many emerging-market central banks, including those in Turkey and Argentina, recognize this distinction. Though they also maintain substantial gold reserves, much of their bullion remains stored in international vaults in London and New York, giving them immediate access to the London Bullion Market Association (LBMA) trading system.
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Through gold swaps, collateralized lending, and spot sales, those reserves can be converted into U.S. dollar liquidity within hours when exchange rates collapse, capital flees, or balance-of-payments pressures intensify. No physical shipment is required, and no lengthy administrative approval process stands in the way.
China is moving in the opposite direction. By repatriating overseas bullion while simultaneously locking newly imported gold inside domestic vaults, Beijing is voluntarily cutting itself off from many of the world’s fastest channels for converting gold into emergency foreign currency.
Concerns over quality control
An even larger problem lies in the type of gold China has been importing. Much of the bullion brought into China over the past two years has reportedly been cast in domestic specifications suited for local retail, settlement, and reserve systems rather than the internationally recognized 400-ounce London Good Delivery standard.
That distinction matters. If Beijing were suddenly forced to raise foreign currency during a financial emergency, those bars could not simply be sold into global markets. They would first need to be refined, recast into internationally accepted bars, verified for purity, approved for cross-border transfer, and shipped overseas.
Each step consumes valuable time while increasing processing costs and reducing the financing value of the underlying asset. On paper, China now holds more than 2,300 metric tons of gold. In practice, a significant portion of those reserves may not be readily deployable when speed matters most.
Physical gold is not risk-free
Many assume that once a central bank purchases gold, quality is no longer a concern. But that assumption deserves closer scrutiny. Given the enormous volume of purchases involved, central banks cannot realistically conduct destructive testing on every bar they acquire. Instead, they rely heavily on certifications issued by refiners and international trading institutions.
Global bullion supply chains are long, multilayered, and often difficult to trace. If counterfeit or substandard gold were ever discovered after purchase, cross-border legal disputes would be expensive, slow, and difficult to resolve.
While such risks remain relatively uncommon, they underscore an important point: Holding physical gold does not eliminate operational risk, particularly when reserves are needed most in times of geopolitical uncertainty and heightened market volatility.
A less flexible reserve portfolio
China’s domestic gold market also lacks the scale and openness of the global bullion market. Unlike London, where trillions of dollars’ worth of gold changes hands, China’s market is relatively closed and far less capable of absorbing massive physical sales.
Should the Federal Reserve resume aggressive interest-rate hikes, triggering renewed capital outflows and pressure on the renminbi, Beijing could eventually find itself needing to monetize hundreds of tons of gold. As such, large-scale domestic sales could overwhelm market demand, pushing prices lower precisely when authorities need liquidity the most. The more gold sold, the lower prices could fall, reducing the amount of foreign currency each additional sale generates.
Instead of stabilizing the financial system, domestic gold reserves could become an increasingly inefficient emergency asset. At its core, China’s current strategy reflects a misplaced approach to risk management. Beijing appears increasingly preoccupied with the low-probability scenario of overseas assets being frozen while paying comparatively less attention to the far more common risks of exchange-rate volatility, capital outflows, and foreign exchange liquidity shortages.
The primary purpose of foreign exchange reserves has never been to maximize absolute security. Their true value lies in remaining liquid, flexible, and immediately deployable when financial conditions deteriorate.
Replacing highly liquid assets such as U.S. Treasury securities with domestically stored physical gold may provide psychological comfort, but it also narrows policymakers’ room to maneuver. In pursuing maximum security, Beijing risks sacrificing the very flexibility that foreign exchange reserves are designed to provide.
Editorial note: Views expressed in this article are the opinions of the author and do not necessarily reflect the views of Vision Times.
